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Reforming China’s Pension Scheme for Urban Workers: Liquidity Gap and Policies’ Effects Forecasting

Author

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  • Xiaoxing Liu

    (Department of Finance, School of Economics and Management, Southeast University, Nanjing 210008, China)

  • Ying Zhang

    (Department of Finance, School of Economics and Management, Southeast University, Nanjing 210008, China)

  • Lin Fang

    (Department of Finance, School of Economics and Management, Southeast University, Nanjing 210008, China)

  • Yuanxue Li

    (Carey School of Business, Johns Hopkins University, Baltimore, MD 21202, USA)

  • Wenqing Pan

    (Department of Finance, School of Economics and Management, Southeast University, Nanjing 210008, China)

Abstract

This study forecasts the liquidity gap in China’s pension scheme for urban workers in the context of an ageing population and the possible effects of recent governmental policies by constructing a basic pension model, including “old people”, “middle people” and “new people” and a simulation method. We find, firstly, that China’s liquidity gap of pension will reach its peak of approximately 13.11 trillion yuan in 2038. Subsequently, this gap will gradually decrease with growth in the mortality rate. Secondly, reasonable intervals for the replacement and contribution rates should be set at [0.417, 0.604] and [0.189, 0.262], respectively, to sustain China’s pension system. Thirdly, compared to increasing fiscal subsidies, an income doubling plan, raising the contribution rate, lowering the replacement rate and delaying the retirement age can significantly reduce the liquidity gap, although the policy costs are relatively high. A policy permitting families to have two children will increase the rate of reduction of the liquidity gap, but it cannot effectively narrow the gap at the peak moment.

Suggested Citation

  • Xiaoxing Liu & Ying Zhang & Lin Fang & Yuanxue Li & Wenqing Pan, 2015. "Reforming China’s Pension Scheme for Urban Workers: Liquidity Gap and Policies’ Effects Forecasting," Sustainability, MDPI, vol. 7(8), pages 1-19, August.
    • Handle: RePEc:gam:jsusta:v:7:y:2015:i:8:p:10876-10894:d:54001
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    References listed on IDEAS

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    Cited by:

    1. Wang, Lijian, 2016. "Actuarial model and its application for implicit pension debt in China," Chaos, Solitons & Fractals, Elsevier, vol. 89(C), pages 224-227.
    2. Xiaohua Chen & Zaigui Yang, 2019. "Stochastically Assessing the Financial Sustainability of Individual Accounts in the Urban Enterprise Employees’ Pension Plan in China," Sustainability, MDPI, vol. 11(13), pages 1-20, June.
    3. Yueqiang Zhao & Manying Bai & Yali Liu & Junzhang Hao, 2017. "Quantitative Analyses of Transition Pension Liabilities and Solvency Sustainability in China," Sustainability, MDPI, vol. 9(12), pages 1-16, December.
    4. Huan Wang & Jianyuan Huang & Qi Yang, 2019. "Assessing the Financial Sustainability of the Pension Plan in China: The Role of Fertility Policy Adjustment and Retirement Delay," Sustainability, MDPI, vol. 11(3), pages 1-20, February.

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